Maco Door and Window Hardware (UK) Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | LORD HOFFMANN,LORD WALKER OF GESTINGTHORPE,LORD SCOTT OF FOSCOTE,LORD MANCE,LORD NEUBERGER OF ABBOTSBURY |
| Judgment Date | 30 July 2008 |
| Neutral Citation | [2008] UKHL 54 |
| Date | 30 July 2008 |
| Court | House of Lords |
[2008] UKHL 54
HOUSE OF LORDS
Appellate Committee
Lord Hoffmann
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Lord Mance
Lord Neuberger of Abbotsbury
Appellant:
Timothy Brennan QC
Akash Nawbatt
(Instructed by HM Revenue & Customs Solicitors Office)
Respondents:
Giles Goodfellow QC
James Rivett
(Instructed by Gregory Rowcliffe Milners)
My Lords,
For the reasons given by Patten J and Collins LJ, as well as those of my noble and learned friends Lord Walker of Gestingthorpe and Lord Neuberger of Abbotsbury, I would allow this appeal.
My Lords,
This appeal raises a very short point of construction of section 18(2) of the Capital Allowances Act 1990. Since my opinion on the point differs from that of a majority of your Lordships it will suffice for me to explain the reasons for my dissent quite shortly. I am enabled to do so because I have had the advantage of reading in draft the opinions of my noble and learned friends Lord Walker of Gestingthorpe and Lord Neuberger of Abbotsbury, who, with my noble and learned friend Lord Hoffmann, constitute the majority, and can gratefully adopt their description of the facts and relevant statutory background.
The issue is whether the warehouse in which the respondent, Maco, stores the stock that it purchases from its Austrian parent, Mayer, is an "industrial building or structure" as defined in section 18 of the 1990 Act. Section 18(1) says that an "industrial building or structure" means "a building or structure in use - "for one or other of the purposes specified in the ten following paragraphs, lettered (a) to (j). Only paragraph (f) is of any use to Maco. Paragraph (f) has four sub-paragraphs, numbered (i) to (iv), of which only sub-paragraph (i) is of any use to Maco. Paragraph (f)(i) specifies
"… the purposes of a trade which consists in the storage -
(i) of goods or materials which are to be used in the manufacture of other goods or materials"
It is common ground that the goods which Maco purchases from Mayer and stores in its warehouse are "goods … which are to be used in the manufacture of other goods or materials". So far, so good. But it is also common ground that Maco does not carry on a "trade which consists in the storage" of goods. Maco's trade consists in the buying of goods and selling them on at a profit. Storage of the goods over the period between purchase and sale is an essential part of that trade but is not a trade on its own account.
This is where section 18(2) comes into play. The subsection says that
"The provisions of subsection (1) above shall apply in relation to a part of a trade or undertaking as they apply in relation to a trade or undertaking except that where part only of a trade or undertaking complies with the conditions set out in subsection (1), a building or structure shall not by virtue of this subsection be an industrial building or structure unless it is in use for the purposes of that part of that trade or undertaking".
Since storage is "a part of" Maco's trade, subsection (2) requires the provisions of subsection (1)(f)(i) to be applied to that part of Maco's trade. The disagreement between the majority and the minority on this appeal is a disagreement as to how that is to be done. I, and I believe my noble and learned friend Lord Mance, take the view that subsection (2) requires that paragraph (f)(i) of subsection (1) must be applied to the relevant part of Maco's trade, i.e. the storage part, as if that part were a trade. The words in subsection (2): "shall apply in relation to a part of a trade …as they apply in relation to a trade…" seem to me to point clearly to that construction. It is, I think, accepted that if that is the right construction of subsection (2), this appeal must be dismissed.
The majority view, however, is that subsection (2) requires that paragraph (f)(i) be applied to Maco's storage activity without any qualification. If that is right then, since Maco does not have "a trade which consists in the storage" of goods, paragraph (f) cannot apply. If that is right, then of course this appeal must be allowed.
Which construction is to be preferred? I have already referred to the words in subsection (2) which seem to me to point to the construction I favour. The consequence of the majority view is that subsection (2) can only apply where the taxpayer is carrying on composite trades one of which is a "trade which consists in … storage". If it had been the intention of the legislature to limit the scope of subsection (2) to composite trades, it seems to me very odd that the reference in the subsection was to "a part of a trade", language which indicates to my mind an activity which is part of a trade but is not itself a trade.
Authority for both constructions can be found. In Saxone Lilley & Skinner Ltd v IRC (1967) 44 TC 122 this House had to consider the meaning of "a part of a trade" in a statutory predecessor of section 18(2). Lord Reid said that the phrase should be given its meaning as a matter of ordinary language and that there was
"… nothing in the context here to justify giving any other interpretation to 'a part of a trade'" (p.139)
and that
"If a trader stores or sells or otherwise deals with two kinds of goods, A and B, I think that it is the ordinary use of language to say that dealing with A is one part of his trade and dealing with B is another part" (p.139)
These remarks seem to me inconsistent with the notion that section 18(2) is confined to cases where a taxpayer is carrying on composite trades.
An even stronger authority in favour of the construction I favour is Kilmarnock Equitable Co-operative Society Ltd v IRC (1966) 42 TC 675. The taxpayer sold coal in 1 cwt bags and in bulk and decided to sell the coal also in 28 lb packets. It constructed a special building to pre-pack the coal in these packets and claimed allowances on the footing that the building was being used "for the purposes of a trade which consists in …… the subjection of goods or materials to any process" (see s.18(1)(e)). The taxpayer contended successfully that, in pre-packing its coal in the 28 lb packets, its coal was being subjected to a "process" for section 18(1)(e) purposes. The Court of Session upheld the claim for capital allowances, rejecting the Revenue's argument that the building was not used for the purpose of a trade part of which consisted of subjecting goods to a process. It was not part of the Revenue's case that the subjecting of the coal to a process had to constitute a trade on its own account. If the opinion of the majority in the present case had been presented and accepted the case would have been otherwise decided. The taxpayer would have lost.
It should not be a matter of surprise that the Revenue did not in the Kilmarnock Co-op case take the composite trade point. Consistently from the enactment of section 8 of the Income Taxes Act 1948, which was in materially the same terms as section 18, until the decision of Lightman J in Bestway (Holdings) Ltd v Luff (1998) 70 TC 512 in 1998 the Revenue appear to have accepted that a "part of a trade" in section 18(2) could consist of an activity that was not a trade in itself. The suggestion that great complications and uncertainties would follow if your Lordships were to uphold the Court of Appeal's decision in the present case and confirm the Revenue's pre-Bestway practice is, in my opinion, shown to be mistaken by the history. There has not been a spate of cases where uncertainty as to the nature of the activity that could constitute a "part of a trade" for section 18(2) purposes has caused problems. Successive chancellors of the Exchequer, from 1945 onwards, have not thought it necessary to introduce amending legislation to confine the scope of subsection (2) to composite trades.
My noble and learned friend Lord Neuberger of Abbotsbury has, in his opinion on this appeal (para.60), suggested that it would be surprising if section 18(2) served only to expand but not to limit the ambit of section 18(1). I must respectfully say that in my opinion that would not be in the least surprising. The apparent intention of section 18(2) was to expand the ambit of section 18(1). Not only can use of a building for the purposes of one of the specified trades attract capital allowances, but use of a building for the purposes of a part of a specified trade can do so. The expansive intention is clear. Why should that be a surprise?
My Lords for these reasons I would uphold the majority decision of the Court of Appeal and dismiss this appeal.
The Facts
My Lords,
This is a corporation tax appeal concerned with capital allowances for industrial buildings. The respondent Maco Door and Window Hardware (UK) Ltd ("Maco") has claimed a writing-down allowance under section 3 of the Capital Allowances Act 1990 (" CAA 1990") for its accounting periods ending on 31 December 1999 and 31 December 2000, but the Revenue amended Maco's self-assessments so as to disallow the claims. The issue turns on the definition of "industrial building or structure" in section 18 of CAA 1990, and in particular on the meaning of the expression "a part of a trade" in section 18(2).
This question has been given different answers in the course of the appeal process. The Special Commissioner (Dr John Avery Jones CBE) allowed Maco's appeal. In the Chancery Division Patten J allowed the Revenue's appeal: [2007] STC 721. In the Court of Appeal the majority (Carnwath and Hallett LJJ) allowed Maco's appeal and restored its claims, but Lawrence Collins LJ dissented: [2007] ST 1442. The Revenue now appeals to your...
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